NAHB Chief for Tax Rise if Cuts Fail

If the the national deficit cannot be reduced by $50 billion in the current session of Congress, the Reagan Administration should consider creating broadly-based new taxes.

That blunt recommendation comes from the National Assn. of Home Builders, historically a strong supporter of President Reagan and most GOP administrations, after an analysis of the proposed budget which harbors drastic cuts for the industry.

The association’s new president, John J. Koelemij, a Tallahassee, Fla., home builder concerned with the outcome of the current budget debate and its impact on the nation’s housing industry this year, didn’t waste much time in issuing a strongly-worded policy statement that the first priority of Congress and the Administration “must be an across-the-board freeze” on all federal spending programs.

Such action, he declared, “would reduce anticipated upward pressures on interest rates later this year” and “would bolster confidence in the financial and consumer marketplace” and “would help sustain the current housing-led economic expansion.”

“If the overall NAHB goal of $50 billion in deficit reduction cannot be achieved through a freeze, as a last resort the Administration should consider revenue-raising measures but only if such measures are broad-based,” Koelemij urged.

Advocated Budget Cuts

For the last decade, the association has been advocating reduction of the federal budget through a national campaign to mobilize popular opinion for deficit reduction efforts.

“We labeled the deficit a ‘ticking time bomb’ that threatens to permanently undermine the strength and vitality of the American economy,” he said. “On the spending side, NAHB has accepted major reductions in housing and community development programs over the last four fiscal years. Between fiscal years 1980 and 1985, budget authority for the Department of Housing and Urban Development was cut from $36 billion to $17 billion for a reduction of over 50%.

“During the same time, the deficit went up, not down. The deficit rose from $74 billion in 1980 to an estimated $222 billion (in fiscal year 1985).

“Unfortunately, much of the Administration’s fiscal year 1986 proposed budget reduction effort focuses on discretionary domestic spending which accounts for less than 20% of the entire budget. Expenditures for defense and Social Security, which in combination with interest payments on the federal debt account for 70% of the budget, are ruled off-limits for budget-cutting under the Administration’s proposal.”

Pleading his case further in this “Star Wars” vs. housing critique, the Floridian said the President proposes cutting about $4 billion, representing one-fourth of the cut in discretionary domestic spending and 8% of the $50 billion in overall spending.

HUD Reductions

“The Administration’s proposal declares a two-year moratorium on housing assistance programs and terminates or dramatically cuts most other housing and community development programs,” he said. “In fact, if the Administration’s programs were enacted, the budget for HUD would drop from 5.3% of the total federal budget in fiscal 1980 to 0.7% in fiscal 1986. During the same period, defense authority would rise from 20.7% to 29.6% of the total budget.

“In terms of housing assistance, reservations for HUD-assisted housing units would drop from 205,000 in fiscal 1980 to 14,500 for fiscal 1986. All government assisted housing starts would fall from 193,000 in 1980 to an estimated 26,500 in 1986.

“We are not quarreling with the need to reduce spending but we do question the disproportionate share of cuts proposed for housing in the fiscal 1986 budget. To trim the deficit by $50 billion in fiscal 1986, we call for an across-the-board spending freeze which freezes not only domestic discretionary programs but also defense programs and cost of living allowances for entitlement programs.”

Administration Proposals

Specifically proposed by the Administration are:

--A two-year moratorium on housing assistance, including newly built or rehabilitated housing for low-income families and the elderly, along with housing vouchers and rural housing programs.

--Increased user fees on loans guaranteed through the Veterans Administration and loans insured through the Federal Housing Administration--raising fees to 5% from 1% on VA loans and to 5% from 3.8% on loans guaranteed by FHA. Such fees for the first time would also be imposed on the Federal National Mortgage Assn. and the Federal Home Loan Mortgage Assn. while the Government National Mortgage Assn.’s existing fees would be increased to match the others.

--Terminate Housing Development Grant and Urban Development Action Grants programs.

--Terminate federal grants for sewer construction, a prerequisite for new housing development, and cut the Community Development Block Grant Program.

--Terminate the Department of Labor’s Job Corps Program which trains young people for jobs in residential construction trades.

The increases in mortgage fees for first-time buyers and the home-building industry is particularly galling because it further weakens consumers’ ability to qualify for loans, requiring more up-front money and increasing the tell-tale amount of the monthly payment.

One reaction to that added cost to homeownership came from a spokesman for the Office of Management and Budget. His view was that the additional fees can “simply be added to the principal, adding very slightly to each monthly payment.”

That credit-card mentality doesn’t include the great possibility that the added cost--estimated by mortgage brokers as amounting to $30 a month for a typical VA loan-purchase--would not have a “slight” effect but rather a drastic, non-qualifying result for the would-be buyer.

In some editions of this section last Sunday, in the very last sentence of this column, two words were transposed, changing the meaning of data from a recent survey on preferences of first-time and move-up home buyers. According to Irvine-based Research Network Ltd., persons and families moving out of condominiums prefer to live in attached housing, not detached (single family) homes. The words “attached” and “detached” were transposed.